macroeconomics of inclusive growth victor lledó and rodrigo garcia-verdu february 2011
TRANSCRIPT
Macroeconomics of Inclusive Growth
Victor Lledó and Rodrigo Garcia-Verdu
February 2011
Outline of Presentation
2
1. Definition and Rationale of Inclusive Growth 2. How Inclusive has Growth Been in
Mozambique?3. Inclusive Growth Strategies4. Policies and Institutions for Inclusive Growth5. Conclusion and Next Steps
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Inclusive growth is defined as growth that is sustained over several years, is broad-based across economic sectors, and creates productive employment opportunities for the majority of the country’s population
Elements of Economic Growth Macroeconomic stability:
Moderate fiscal and current account deficits
Low debt to GDP ratio Low and stable inflation Adequate level of reserves
High investment and savings rates
Openness to trade Enforcement of property rights Good governance Declining population growth
rate
Elements of Inclusive Growth High growth rates for several years
Sustained growth accelerations Avoid growth collapses
Structural transformation: Output and export diversification
Broad-based productive employment
Significant reduction in poverty Propitious business environment Efficient natural resource
management Equality of opportunity through
basic education, health and infrastructure
3Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Sources: own definition based on Commission on Growth and Development (2008), The Growth Report. Strategies for Sustained Growth and Inclusive Development, and Ianchovichina and Lundstrom (2009), “Inclusive Growth Analytics. Framework and Application,” World Bank.
Definition and Rationale of Inclusive Growth
Definition and Rationale of Inclusive Growth
4
How long should growth be sustained for? All countries considered by the Growth Commission as successful cases of Inclusive Development have sustained high growth rates for at least three decades
Source: World Development Indicators 2010. World Bank.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Botswana (1960-2005)
Brasil (1960-1980)
China (1961-2005)Indonesia (1966-
1997)
Korea (1960-2001)
Malaysia (1967-1997)
Thailand (1960-1997)
0
2,000
4,000
6,000
8,000
10,000
12,000
0 5 10 15 20 25 30 35 40 45
GD
P p
er c
apit
a (2
000
US
$)
Years after takeoff
How Inclusive has Growth Been in Mozambique?
5
The growth rate of real GDP in Mozambique over the period 1995-2010 has been the second highest among non-oil exporting countries in the Sub-Saharan Africa region
Source: Crispolti (2010), “Economic Growth in Mozambique. Experiences and Policy Challenges,” IMF presentation.
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Rw
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Pe
rce
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Growth rate of real GDP: average 1995-2009
Average for non-oil exporters
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
How Inclusive has Growth Been in Mozambique?
6
Despite Mozambique’s impressive performance over the past two decades, growth still needs to be sustained for several more years, and be broader and more diverse
Source: Clément and Peiris (2008), Post-Stabilization Economics in Sub-Saharan Africa: Lessons from Mozambique, IMF.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Sub-Saharan Africa (1973)
Uganda (1982)
Asean-5 (1973)
Vietnam (1989)
Tanzania (1995)
India (1982)
Mozambique (1992)
0
100
200
300
400
500
600
700
800
0 5 10 15 20 25 30 35
Re
al G
DP
(In
de
x,
Tak
eo
ff y
ea
r =
10
0)
Years after takeoff
Growth Takeoffs
How Inclusive has Growth Been in Mozambique?
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Growth also needs to be accelerated to counter a declining downward trend of potential output growth
Source: Crispolti (2010), “Economic Growth in Mozambique. Experiences and Policy Challenges,” IMF presentation.
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009
Pe
rce
nt
Actual and potential growth rate of real GDP in Mozambique: 2001-2009
Actual Trend
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
8
Source: UNCTAD-STAT, United Nations Conference on Trade and Development (UNCTAD).
Unlike other successful cases, Mozambique growth takeoff has not been accompanied by significant export or economic diversification. In fact the export base has become more concentrated
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.719
96
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Her
fin
dah
l-H
irsc
hm
ann
Ind
ex
(0=
No
t C
on
cen
trat
ed,
1= M
ost
Co
nce
trat
ed)
Export Concentration Index Mozambique Uganda Vietnam Mozambique (Average 1996-2009)
How Inclusive has Growth Been in Mozambique?
How Inclusive has Growth Been in Mozambique?
9
Critically, growth in Mozambique has been less pro-poor than in other successful countries, and such pro-poor characteristics appear to be declining over time
Source: Own estimates based on data from the World Development Indicators 2010. World Bank.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
1.21
0.55
1.41
0.33
0.30
0.77
0.24
0.74
0.26
0.11
0.0 0.5 1.0 1.5
China (1993-2005)
Uganda (1989-2005)
Vietnam (1993-2006)
Botswana (1986-1994)
Mozambique (1996/07-2002/03)
Elasticity of headcount poverty rate with respect to growth in real GDP per capita
2.50 dollars per day1.25 dollars per day
0.86
0.44
0.04
0.0 0.2 0.4 0.6 0.8 1.0
1996/07-2002/03
1996/97-2008/09
2002/03-2008/09
Elasticity of Mozambique's national poverty line headcount poverty rate with respect to
growth in real GDP per capita
How Inclusive has Growth Been in Mozambique?
10
The growth incidence curve for Mozambique also confirms that growth was not pro-poor between 2002/03 and 2008/09 Households in the first three deciles experienced negative growth in
expenditure per capita, while others benefited from positive growth
Sources: own estimates using ADePT based on data from IOF 2008-09 and IAF 2002-03.
-5
-3
-1
1
3
5
Ann
ual
gro
wth
rat
e %
1 10 20 30 40 50 60 70 80 90 100
Expenditure percentiles
Growth-incidence 95% confidence bounds
Growth in mean Mean growth rate
Total (years 2008 and 2002)
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
How Inclusive has Growth Been in Mozambique?
11
In contrast, China is an example of a sustained growth country that registered a pattern of highly pro-poor growth between 1993 and 1996
Source: Ravallion (2004), “Pro-Poor Growth: A Primer,” mimeo, Development Research Group, World Bank.
Growth Incidence Curve for China: 1993-1996
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
How Inclusive has Growth Been in Mozambique?
12
Brazil is one of the countries which has registered the most progressive or pro-poor growth pattern, with the poorest households experiencing a growth rate of income per capita nearly 6 times higher than the richest households
Source: Paes de Barros, Ricardo (2009), “Sobre a Evolução Recente da Pobreza e da Desigualdade,” Instituto de Pesquisa Econômica Aplicada, based on data from the Pesquisa Nacional por Amostra de Domicílios (PNAD), 2001-2008.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Inclusive Growth Strategies
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Elements Sustained GrowthStructural TransformationProductive Employment Equality of OpportunitiesSignificant poverty reduction.
Opportunities Sea Access, Neighbors Mineral WealthSkillsInequality
StrategiesKey Foster a competitive and diversified export base Boost production and productivity in labor intensive sectorsSupporting Improve management of natural resourcesStrengthen social cohesion
Policies Fiscal Policy, including to address poverty and inequality.Monetary PolicyExchange Rate PolicyTrade PolicyStructural Reforms
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive Growth
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In all these endeavors, Mozambique should preserve one of its key assets: Macroeconomic stability
Preserving Macroeconomic Stability – Key PoliciesPursue prudent fiscal policy that preserves debt
sustainability and raise country's long-term growth factors.
Create fiscal space through revenue effort and prudent borrowing to help finance well-targeted spending.
Pursue prudent monetary policy to keep inflation low -> Inflation hurts the poor
Monitor, but do NOT manage, the Real Effective Exchange Rate (REER)
Element• Avoid growth
decelerations through bad policies
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthKey Strategies
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OpportunitiesSea Access, Proximity to South
Africa
Foster a competitive and diversified export baseBoost production and productivity in labor-intensive sectors
Policies and Institutions Step up public investment to remove infrastructure and skills gaps - Growth, Transformation, EmploymentAccelerate regulatory reforms to improve the business environment - Growth, Transformation, Employment, EqualityPromote financial inclusion Growth, Employment, EqualityOptimize market access and regional integration Growth, Transformation, EmploymentMozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthPublic Investment
16
Mozambique’s public investment is falling behind the curve
Source: Crispolti (2010), “Economic Growth in Mozambique. Experiences and Policy Challenges,” IMF presentation.
-15
-10
-5
0
5
10
15
20
1995-99 2000-04 2005-09
Pe
rce
nt
Real GDP growth
average of non-fuel exporting SSAMozambique
Min
Min
Min
Max
MaxMax
0
10
20
30
40
50
60
1995-99 2000-04 2005-09
Pe
rce
nt
of
GD
P
Gross lnvestment Rate
average non-fuel exporting SSAMozambique
Max
Max
Max
Min MinMin
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthRegulatory and Labor Reforms
17
Diversification into light manufacturing and other labor intensive industries in Mozambique hampered by high indirect costs in the form of burdensome regulations …
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Source: Eifert, Gelb, and Ramachandran (2005) based on World Bank Investment Climate Assessment data.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Senegal
Morocco
China
India
Ethiopia
Nigeria
Uganda
Zambia
Tanzania
Kenya
Mozambique
Materials
Labor
Capital
Indirect
Cost structure, firm-level average, by country
Policies and Institutions for Inclusive GrowthFinancial Inclusion
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… and one of the highest rates of financial exclusion among SADC countries
South Africa
Kenya
Botswana
Rwanda
Namibia
Nigeria
Tanzania
Malawi
Zambia
Uganda
Mozambique
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
63
17
44
14
45
21
9
19
15
18
12
3
2
5
7
0
2
2
7
12
3
1
11
38
5
26
22
24
35
19
11
17
9
24
43
46
52
52
53
54
55
61
62
78
FinScope Survey Results:Comparative Access to Finance in African Countries
Banked Other Formal Informal Excluded
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Source: Mozambique Fin Scope.
Policies and Institutions for Inclusive GrowthEconomic Diversification in Uganda
19
Uganda constitutes a very relevant case study for Mozambique of successful economic diversification: Both countries started their growth takeoffs around the same time after
emerging from a protracted civil war Uganda has a more disadvantageous initial condition than Mozambique,
since it is landlocked, yet it has been a more aggressive economic reformer
Source: World Development Indicators 2010. World Bank.
-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8
Sao Tome and PrincipeSeychellesCameroon
Cote d'IvoireTogoNiger
LesothoGambia, TheMozambique
SwazilandMalawi
MadagascarZambia
BeninMauritania
TanzaniaMali
GabonKenya
Burkina FasoSenegal
Cape VerdeGhana
UgandaNamibia
South AfricaMauritius
Botswana
(Lower values indicate lower regulatory quality)
Estimate of Regulatory Quality: average 1998-2009
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthManaging Natural Resources Well
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Opportunities/ConstraintsMineral wealth
Improve the management of natural resources
Policies and Institutions Appropriate resource taxation systems, model contracts Transparent budgets Stabilization Funds Sovereign Wealth Funds Enhance the monetary policy framework and operations and monitor, but do not manage, the exchange rate
Element Avoid growth decelerations through bad policies and
institutions Finance growth accelerations
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthManaging Natural Resources in Botswana
21
1980
/81
1982
/83
1984
/85
1986
/87
1988
/89
1990
/91
1992
/93
1994
/95
1996
/97
1998
/99
2000
/01
2002
/03
2004
/05
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Recovery of resource rent and taxes by state from
mining in Botswana, 1980 to 2005
Mineral RentsMineral Taxes
Million p
ula
1980
1983
1986
1989
1992
1995
1998
2001
2004
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Growth of real, per capita wealth and GDP
in Botswana and Namibia, 1980 to 2005
(1980 = 1.00)Bots. real percapita wealthBots. real percapita GDPNamibia real percapita wealthNamibia real percapita GDP
Source: Lange (2011), The Changing Wealth of Nations. Measuring Sustainable Development for the New Millennium, World Bank.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
22
Manage fluctuations in revenues from natural resources rents through the use of stabilization funds and rules for smoothing public expenditure Government created three funds -the Domestic Development Fund,
the Revenue Stabilization Fund, and the Public Debt Service Fund- which have allowed it to avoid the boom-bust cycles in commodity prices
Transform revenue from natural resources into sustained economic growth by effectively reinvesting in additional productive capacity, including education, training, health, and infrastructure Government limits current expenditure and debt payment and devotes
close to 40% of government revenues allocated to infrastructure and human capital expenditures
Fair price for mineral resource use Government has been able to form stable, long-lasting partnerships
with mining companies, leaving company management in the hands of private sector firms. It has effectively negotiated equity and business shares, instead of outright nationalization, and increased its share of equity and revenue
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Policies and Institutions for Inclusive GrowthManaging Natural Resources in Botswana
Policies and Institutions for Inclusive GrowthStrengthening Social Cohesion
23
Opportunities/ChallengesIncome inequality, unemployment
Strengthening social cohesion
Policies and Institutions
Implement sustainable and well-targeted social safety nets Preserve macroeconomic stability
Element Avoid growth
decelerations though conflict
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation
Conclusions and Next Steps – Thanks !
24
Mozambique growth needs to become more inclusive to reinvigorate the poverty reduction process.
The country’s strong track record of macroeconomic stability needs to be preserved.
It has provided the country with a sound base for economic development-> Scaling up public investment in infrastructure is feasible
Preserving macroeconomic stability will create a framework for private sector activity
A more inclusive growth strategy could rest on two key pillars: Fostering a competitive and diversified export base Boost production and productivity in labor intensive sectors
-> Catch up with faster reformers in Africa and worldwide
Inclusive growth strategies should be supported by policies and institutions that strengthen natural resource management an social cohesion.
Mozambique: Seminar on Growth, Economic Transformation, and Job Creation